AVG logistics stock

Hi Guys, have been doing research on AVG logistics and thought will share with the group. Stocks looks v cheaply priced givens strong bullish guidance by management. I have tried to keep my view balanced by also highlighting the risk factors. Any thoughts?

1. Company Overview:

AVG Logistics Limited is a leading Indian logistics company offering transportation, warehousing, and cold chain services. Founded in 2010, the company has grown rapidly and established itself as a reliable partner for numerous clients across diverse industries.

2. Management:

AVG Logistics boasts a strong and experienced management team led by:

  • Sanjay Gupta: Managing Director and CEO with over 20 years of experience in the logistics industry.
  • Asha Gupta: Whole Time Director with expertise in finance and accounting.
  • Vinayak Gupta: Vice President with a proven track record in operations and business development.

3. Financial Performance:

H2 FY24 (October 2023 - March 2024):

  • Revenue: INR315.70 crores (reported as of November 2023)
  • EBITDA Margin: 13.40% (reported as of November 2023)
  • PAT: INR13.40 crores (before tax)
  • Expected Growth:
    • Revenue: 65% increase from H1 FY24
    • EBITDA Margin: Increase to 18-22% range
    • PAT: Increase to INR30-35 crores

Key Drivers of H2 FY24 Performance:

  • Increased demand from existing and new clients across diverse industries.
  • Optimization of transportation routes and logistics operations.
  • Improved fleet utilization and cost-control measures.
  • Contribution from new business ventures like reefer logistics.

Challenges and Uncertainties:

  • Rising fuel costs and inflationary pressures.
  • Potential economic slowdown affecting client demand.
  • Delays in expansion plans and execution risks.

Expanding on Revenue Projections:

FY25:

  • Revenue: INR725 crores (targeted)
  • Growth: 40% increase from FY24
  • Key Drivers:
    • Continued expansion into new businesses.
    • Increased capacity in existing operations, including warehousing and cold chain.
    • Focus on growing high-margin services.
    • Leveraging Driver to Owner scheme for cost-effective fleet expansion.

Beyond FY25:

  • Revenue: INR1,000 crores by FY26 (targeted)
  • Key Drivers:
    • Aggressive market penetration in new business segments.
    • Building a strong pan-India network and expanding to new regions.
    • Investing in technology and digitalization for operational efficiency.
    • Achieving economies of scale and cost leadership.

Assumptions and Risks associated with Revenue Projections:

  • Favorable economic and industry conditions.
  • Successful execution of expansion plans and new business initiatives.
  • Maintaining strong client relationships and brand reputation.
  • Managing competition effectively and adapting to changing market dynamics.

4. Expansion Plans:

  • Entering new businesses like reefer logistics, household shifting, and liquid logistics.
  • Doubling cold chain division revenue within the next year.
  • Building new cold storage facilities.
  • Expanding locally in the dry transportation business.
  • Investing in electric vehicles.

5. Highlights:

  • Strong partnership with Indian Railways for new cargo lines.
  • Driver to Owner scheme for vehicle acquisition, reducing capex.
  • Commitment to sustainability and ethical business practices.
  • Confident in exceeding market expectations.

6. Key Risks:

  • Competition: Intense competition exists in the logistics industry, requiring constant innovation and cost control.
  • Macroeconomic factors: Fluctuations in fuel prices and economic slowdowns can impact profitability.
  • Regulatory changes: New regulations or compliance requirements can increase costs and complexity.
  • Execution risks: Successful implementation of expansion plans is crucial for achieving financial targets.

7. Red Flags:

  • High debt-to-equity ratio: This could limit the company’s financial flexibility and increase its vulnerability to economic downturns.
  • Dependence on key customers: Losing major clients could significantly impact revenue and profitability.
  • Limited track record in new businesses: Successfully entering new markets carries inherent risks.

Materials used:

  1. https://www.bseindia.com/xml-data/corpfiling/AttachHis/4c9defa4-4f42-446b-a4b4-853336cf43b4.pdf
  2. https://www.bseindia.com/xml-data/corpfiling/AttachHis/ef6c1368-502d-426d-9705-943205c83609.pdf
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AVG Logistics Strengthens Cold Chain Capability by acquiring fleet of 50+ Cold Chain vehicles.
This greatly enhances AVG’s ability to service recently signed long term contract with India’s largest MNC FMCG Company both on the dry and frozen goods side. This fleet represents 20% of AVG’s current cold chain fleet strength and takes up AVG’s total cold chain fleet strength to 275+.

https://www.bseindia.com/xml-data/corpfiling/AttachLive/67efc470-a03e-4a97-930f-38a9b554ce33.pdf

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Did you get a chance to review Q3?

:small_blue_diamond:Prominent clients: Nestle, HUL, DS Group, Apollo Tyres, JK Tyres, ITC, Airtel, MRF, Jubilant Food, UltraTech Cement, Coca Cola and more.
Newly added clients: PepsiCo, Leap India, Colgate, BigBasket, Loreal and many other retail companies.

:small_blue_diamond:Fleet compromise over 3,000 vehicles which includes 550 owned vehicles allowing us to dedicate the details of the transportation effectively.

:small_blue_diamond:Working with OEMs to launch EV electric vehicles and LNG fleets to our existing fleet and target to add 100 vehicles till December 24.

:small_blue_diamond:Added 50 high quality cold chain vehicles from multinational logistics company consisting of 20% over existing cold chain fleet.

Read Full Q3 concall highlights: https://twitter.com/Bornwinner_VJ/status/1763829409377583429

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As of Sep-23 Balance Sheet, the company is having 139Cr of receivables out of which 50cr is more than 6 months. Why are the receivables so high when the company is doing business for Reputed customers like Nestle and Pepsico?

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Q4FY24 results- Very good results.

Press release

AVG Logistics Achieves 283% PAT Growth in FY24

FY24 Highlights:
 Company had over 467 owned vehicles in FY23 and by FY24, this increased to 574, with an addition of 107 vehicles.
 The Company expands its rail network with the addition of 3 new routes, bringing the total to 8rail
routes by FY24.
 The company’s debt reduced from ₹112.74 Cr to ₹88.88 Cr in FY24, reflecting effective debt
management and improved financial health.
 Company has declared the dividend to its shareholders consecutively for this year also at a rate of 12% on face value as compared to 10% in previous year.

Commenting on performance, Mr. Sanjay Gupta Managing Director & CEO, said,
With substantial year-on-year growth in revenue, EBITDA, and PAT, AVG Logistics is reaffirming its
commitment to excellence.
The award of the significant Indian Railways contract is a testament to our strategic long-termvision. Recent acquisition of a fleet of high-quality cold chain vehicles further amplifies our capabilities and demonstrates our dedication to providing top-notch services to our customers.

In my opinion, this is an unduly glorified press release. One should carefully read the published financial statements along with note 6 and note 9.

There are some contentious points -

  1. In point 9 they have mentioned about “a fair value gain of Rs. 702.65 lakhs” against the allotted Invits which is being reflected in the P/L but I think that is more of an asset till not sold/encashed.

  2. The rectification details mentioned in note 6 are resulting in a more glorified QoQ result. Just a point that one should be aware of.

  3. The other income of 1015.77 lakhs, which includes ”the fair value gain of 702.65 lakhs" as per the press release, but yet the difference of 312.35 lakhs remains unexplained.

I am not an accounting expert but point 1 and 3 above may need further explanation.

I have not yet heard the earnings conference call, the recording and transcript of which have been published. I had infact even missed its schedule announcement. Rather when was it announced?
I hope to review that soon and find answers to my outstanding questions therein. Would appreciate if anyone knowledgeable can throw some light on these points.

Disclosure: Am invested.

Having a good knowledge of Ind As 109,
And Ind As 101
Will fix your questions.

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Found this in their earnings call transcript -

@Ashar_Mann could you please explain the same to me in the context of the AS 109 and 101 as I have almost zero knowledge in that area? However, will now try to check the accounting standards.

Copilot to the rescue. Simply amazing that I can’t resist sharing. Probed MS copilot like a 10 year old with a barrage of questions regarding AS 109 and 101 and presented the case of the above treatment of the Invits and the entire topic was explained absolutely clearly.

Below is the final gist -

So,
As per 101 - When you first adopt Ind As there’s inconsistency in recognising revenue, cost, even leases, financial assets, etc

When you first move from AS to Ind As you have to make sure to give the restrospective changes as on the due date as the same is change in accounting policy.

Co. Had some understatement of 16 crores of PBT due to recognition differnece which they had booked last time the same is missing this time.

As per Ind As 109 FV gain on equity instrument is not opted for one time choice to route through OCI should be routed through PL
FVTPL makes this compulsion.

Hence, if you see the changes and take out the above effect,
Effectively the co. Has grown it’s bottom line by 20.833%

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